Energy Alert

Mexico’s 3rd Long-Term Power Auction November 2017

Table of Contents

Page 2

1

Executive Summary

3

2

Final results of the 3rd LT Power Auction

5

3

Comparison of the Mexican LT Power Auctions to date

13

4

International Context

15

5

EY Professionals

16

Executive Summary Key Highlights of the SLP-1/2017 ►

New lowest Energy + Clean Energy Certificates weighted average price = $20.57 USD/MWh (in the 2nd LT Power Auction, the price was $33.47 USD/MWh).

►

The total estimated investment is $2.369 billion USD over the next three years. ►

15 new power plants will be installed: 9 Solar PV, 5 Wind and 1 Turbo Gas

►

As with previous auctions, Mexico’s dominant utility (Federal Electricity Commission or CFE) purchases all of the available products, in order to meet the requirements of its Basic Service customers.

►

Due to the addition of a Clearing House, this auction permitted private companies to submit purchase offers; Iberdrola and CEMEX took advantage on this option and submitted offers as potential buyers.

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This Auction fetched prices 27.3% lower than established ceiling prices.

Key Aspects ►

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►

►

Participants

A complex bid evaluation process with regional adjustment of bid prices Bidders offer packages of up to 3 different products: Capacity, Cumulative Energy and Clean Energy Certificates Bidders were allowed to offer a combined package price for the totality of offered products Different from auctions in 2015 and 2016, a Clearing House is now stablished, allowing private buyers to compete face to face with CFE

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►

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Buyers: CFE SSB (Basic Service Supplier, per its acronym in Spanish. This is a State productive company) and private entities Clearing House: corporate entity that administers all contracts awarded through auctions Bidders: foreign and local private investors alongside CFE SSB

Source: SENER, CENACE and EY

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3rd Long-Term Power Auction in Mexico 2017

Next important dates ►

►

►

December 18th 2017: SPV incorporation March 18th 2018: Contract subscription June 2019-June 2020: Commercial operation date

Executive Summary Key Highlights of the SLP-1/2017

5.49 TWh 90.2% of Initial Purchase Energy Offer

The Purchase Offer for the 3rd Long-Term Power Auction adds up to:

5.95 MCECs 97.8% of Initial Purchase CECs Offer

593 MW 41.9% of Initial Purchase Capacity Offer

This Auction enables Mexico to meet its clean energy target of achieving 35% of its electricity generation from renewable sources of energy by 2035, and 50% by 2050. Source: SENER, CENACE and EY

Page 4

3rd Long-Term Power Auction in Mexico 2017

15 new power plants in 8 different states 2,562 MW of new clean capacity in this Auction, bringing a total of 7,451 MW in the three auctions

The combined output of the plants will account for 1.78% of the total annual generation in Mexico Breakdown of capacity:  84% Turbo Gas  13.95% Wind  1.69% Solar PV

Details of final awarded projects Exchange rate MXN/USD: $19.185

Capacity offered Cum. Energy offered (MW/year) (MWh/year)

CECs offered (CEC/year)

Offered Price (USD/year)

435,354

483,727

10,795,018

15.54

7.77

-

616,692

770,864

12,646,167

12.62

6.31

Turbo Gas

499.95

-

-

18,298,170

-

-

Sonora

Solar PV

-

235,640

265,095

5,522,812

15.00

7.50

Canadian Solar Energy México

Aguascalientes

Solar PV

-

206,017

247,220

4,175,275

12.67

6.33

Canadian Solar Energy México

Sonora

Solar PV

-

210,426

252,511

4,848,214

14.40

7.20

Consorcio Engie Eólica

Tamaulipas

Wind

30.62

362,935

391,805

7,982,230

13.03

6.52

Consorcio Engie Solar 1

Sonora

Solar PV

-

280,055

302,332

6,052,738

14.04

7.02

Consorcio Engie Solar 1

Tlaxcala

Solar PV

-

486,313

524,997

10,359,879

13.84

6.92

Consorcio Engie Solar 4

Chihuahua

Solar PV

-

379,603

434,486

8,235,423

13.80

6.90

Enel Rinnovabile

Coahuila

Wind

-

373,017

373,016

6,624,769

11.84

5.92

Enel Rinnovabile

Coahuila

Wind

-

357,032

357,031

6,447,996

12.04

6.02

Enel Rinnovabile

Coahuila

Wind

-

510,680

510,680

9,076,612

11.85

5.92

Enel Rinnovabile

Nuevo León

Wind

-

848,883

848,883

16,475,585

12.94

6.47

Mitsui & Co. and Trina Solar

Zacatecas

Solar PV

-

189,928

189,928

3,749,179

13.16

6.58

Energía Renovable del Istmo II

Tamaulipas

Wind

52.04

-

-

1,691,300

-

-

Company

State

Technology

X-Elio Energy

Sonora

Solar PV

10.00

Neoen International

Aguascalientes

Solar PV

Compañía de Electricidad Los Ramones

Nuevo León

Canadian Solar Energy México

1

Based on weighted formula established under the “Long-Term Auction Manual” (in Spanish, “Manual de Subastas de Largo Plazo”).

Source: SENER, CENACE and EY

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3rd Long-Term Power Auction in Mexico 2017

Cum. Energy CEC (USD/MWh)1 (USD/CEC)1

Technology distribution for awarded projects and selected States Solar

1

Wind

3

42% CEC

4

58%

Turbo Gas

6 8

2

7

5 Selected Sates (3rd Auction)

45%

Cumulative Energy

►

1 Sonora

►

5 Tamaulipas

►

2 Chihuahua

►

6 Zacatecas

►

3 Coahuila

►

7 Aguascalientes

►

4 Nuevo León

►

8 Tlaxcala

55%

2%

Capacity

84% ►

Tlaxcala and Zacatecas are states that got awarded projects for the first time. Solar

Source: SENER, CENACE and EY

Page 6

3rd Long-Term Power Auction in Mexico 2017

Wind

Turbo Gas

14%

Allocated amounts by technology ► ► ►

CEC  Cumulative Energy  Capacity 

5.95 MCECs 5.49 TWh 593 MW Cumulative Energy

CEC 2%

Capacity

10%

58% 41% 26%

26%

40%

100%

100%

%

100%

35%

57%

50% 6% 1%

Initial Purchase Offer

Not Awarded

Awarded

Initial Purchase Offer

Not Awarded

Awarded

Initial Purchase Offer Solar

Source: SENER, CENACE and EY

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3rd Long-Term Power Auction in Mexico 2017

Not Awarded Wind

Awarded

Turbo Gas

Capacity results By company and by technology

Capacity Results ENERGIA RENOVABLE DEL ISTMO II

32.50

22.81

COMPAÑÍA DE ELECTRICIDAD LOS RAMONES

36.60

X-ELIO ENERGY

Product offered (GW-year)

CONSORCIO ENGIE EOLICA

27.19

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

Thousand (USD/GW)

Solar

Wind

Turbo Gas

Exchange rate MXN/USD: $19.185

Source: SENER, CENACE and EY

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3rd Long-Term Power Auction in Mexico 2017

Awarded nodes analysis

Awarded Energy (GWh) 1,698

Reynosa

2,481

Río Escondido

814

1d.

2. Consorcio Engie Solar 4

Moctezuma

1,011

Central

755

Güemez

1,083

Hermosillo

-

Monterrey

2,221

Aguascalientes

1,382

Obregón

2.

3a,b. Consorcio Engie Solar 1

3b.

4. Consorcio Engie Eólica 5a,b,c. Canadian Solar Energy México

4. 3a.

5a.

7. 5c.

0

5

10

6. Mitsui & Co. and Trina Solar Holdings

5b.

7. Neoen International 6.

8. X-Elio Energy

8.

15

20

LMP range (min - max) USD/GWh

1

1a,b,c,d. Enel Rinnovabile

1a,b,c.

25

30

40

Energy + CEC weighted average price USD/GWh with nodal adjustment1

Even without the nodal adjustment, the offered price still below the LMP range.

Source: SENER and EY

Page 9

35

3rd Long-Term Power Auction in Mexico 2017

Exchange rate MXN/USD: $19.185

Unit Price (USD per MWh/year) $1,000,000

$800,000

$600,000

$400,000

Page 10 Source: CENACE

3rd Long-Term Power Auction in Mexico 2017

$859,858.55

$868,723.07

$877,587.60

$106,374.25

$159,561.38

$212,748.51

$265,935.64

$319,122.76

$0

$850,994.03

$200,000

$886,452.12

$895,316.64

$904,181.16

$913,045.68

$921,910.20

$930,774.72

$939,639.24

$948,503.76

$957,368.29

$966,232.81

$975,097.33

$983,961.85

$992,826.37

$1,001,690.89

$1,010,555.41

$1,019,419.93

$1,028,284.46

$1,037,148.98

$1,046,013.50

$1,054,878.02

$1,063,742.54

Capacity’s Purchase Offers presented for the Interconnected National System (SIN per its acronym in Spanish) by CFE SSB

Capacity Price Curve - SIN - 3rd LT Auction

$1,200,000

Amount of MW

Exchange rate MXN/USD: $19.185

Energy’s Purchase Offer presented for the National Electricity System (SEN per its acronym in Spanish) by CFE SSB

$11.75

$15.67

$19.59

$23.50

$27.42

$31.34

$31.66

$31.99

$32.32

$32.64

$32.97

$33.30

$33.62

$33.95

$34.28

$34.60

$34.93

$35.26

$35.58

$35.91

$36.24

$36.56

$36.89

$37.21

$37.54

$37.87

$38.19

$38.52

$38.85

$45 $40 $35 $30 $25 $20 $15 $10 $5 $0

$39.17

Unit Price (USD per MWh/year)

Cumulative Energy Price Curve - SEN - 3rd LT Auction

Amount of MWh

Exchange rate MXN/USD: $19.185

Source: CENACE

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3rd Long-Term Power Auction in Mexico 2017

CEC’s Purchase Offer presented for the Electricity National System (SEN per its acronym in Spanish) by CFE SSB

CEC's Curve - SEN - 3rd LT Auction

$7.38

$9.49

$13.71

$15.82

$16.87

$17.05

$17.40

$17.23

$11.60

$5

$17.58

$17.75

$17.93

$10

$18.10

$18.28

$18.46

$18.63

$18.81

$18.98

$19.16

$19.34

$19.51

$19.69

$19.86

$20.04

$20.21

$20.39

$20.57

$20.74

$15

$20.92

$20

$21.09

Unit Price (USD per MWh/year)

$25

$0

Amount of CECs

Exchange rate MXN/USD: $19.185

Source: CENACE

Page 12

3rd Long-Term Power Auction in Mexico 2017

Awarded electricity in the 3rd LT Power Auctions to date

1st LT Power Auction 2015

‘ Auction 2nd LT Power 2016

5.4 TWh

8.9 TWh

5.49 TWh

Energy awarded

Energy awarded

Energy awarded

5.4 MCECs

9.3 MCECs

5.95 MCECs

CECs awarded

CECs awarded

CECs awarded

1,200 MW

593 MW

Capacity awarded

Capacity awarded

PV Solar represented:

PV Solar represented:

PV Solar represented:

4 TWh 4 MCECs

4.8 TWh 4.9 MCECs 184 MW

3.0 TWh 3.4 MCECs 10 MW

Source: SENER, CENACE and EY

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3rd LT Power Auction 2017

3rd Long-Term Power Auction in Mexico 2017

Comparative of 1st, 2nd and 3rd Long-Term Auctions Based on weighted formula of the Auction Manual

3rd LT Auction 2nd LT Auction 1st LT Auction

Amount Max. Price Avg. Price Amount Max. Price Avg. Price Amount Max. Price Avg. Price

Capacity (USD/MW)

Cumulative Energy (USD/MWh)

CEC (USD/CEC)

593 $36,601.57 $29,776.11 1,187 $54,973.95 $29,439.06 $$-

5,492,575 $15.54 $13.34 8,909,819 $26.47 $20.28 5,402,880 $43.72 $31.99

5,952,575 $7.77 $6.67 9,275,534 $19.52 $13.08 5,380,911 $21.86 $16.44

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The previous table shows the final numbers considering the weighted formula established under the “Long-Term Auction Manual” (in Spanish, “Manual de Subastas de Largo Plazo”).

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Price comparison of 3rd LT Power Auction to 2nd LT auction results: average price of Clean Energy (Energy + CEC) declined by 38%, and compared to 1st LT auction results, 57% lower.

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In the recent Auction, the sale offers gave an economic surplus above 50%, translating it into savings over 27%. Exchange rate MXN/USD: 1st Auction: $17.33 2nd Auction: $18 3rd Auction: $19.185

Source: SENER, CENACE and EY

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3rd Long-Term Power Auction in Mexico 2017

International Context Mexico is more competitive than ever Wind power at $17.7 USD/MWh offered by Enel, represents some of the lowest electricity prices in the world; previous it was Saudi Arabia at $17.9 USD/MWh

Lowest Solar Power pricing (USD/KWh) $0.09 $0.08 $0.07 $0.06 $0.05

$0.04 $0.03 $0.02

Consistent with previous Long-Term Power Auctions in Mexico, solar and wind power prices continue to reflect dramatic price declines

$0.01 $0.00

►

While the lowest solar power prices occurred in Saudi Arabia just a few months ago, Mexico’s prices still come very close at $19.7 USD/MWh, breaking its own record with the last two power auctions.

Source: Clean Technica, Electrek and EY

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3rd Long-Term Power Auction in Mexico 2017

EY Professionals

Héctor Rocha Partner - Markets & Business Development EY Mexico

Alfredo Álvarez Partner - Energy Segment Leader EY Mexico

Tel: +52 (55) 5283 1300 Email: [email protected]

Tel: +52 (55) 5283 1179 Email: [email protected]

José Salas Partner - Advisory EY Mexico Tel: +52 (55) 1101 7329 Email: [email protected]

Rafael Aguirre Partner - Transaction Advisory Services EY Mexico Tel:

+52 (55) 5283 8650

Email: [email protected]

Paul Roberti Executive Director - Power & Utilities EY Mexico Tel: +52 (55) 5283 8666 E-mail: [email protected]

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3rd Long-Term Power Auction in Mexico 2017

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