Mexico’s firm capacity deficit expected to support batteries until 2030

According to Aurora Energy Research, the Mexican electricity market is going through a period of firm capacity shortages that will keep prices high in the power balancing market over the coming years. In an interview with pv magazine, Marvin Gareiss argued that batteries will play a growing role in the system, although he warned that regulatory uncertainties still persist regarding their remuneration scheme.

Gareiss explained that there “still exists a degree of uncertainty” regarding the regulatory evolution of the power balancing market in Mexico. As he indicated, the government is analyzing international experiences to adapt the regulatory framework and facilitate the participation of storage systems. “We interpret it as a sign of intention to update the current regulatory framework to facilitate the participation of batteries in the market,” he stated.

Regarding international references, he pointed out that the current design of the Mexican market presents risks in the face of potential scenarios of firm capacity oversupply. “As happened in 2021, the current market design allows that, in these scenarios, the payment reaches zero dollars,” he indicated. In contrast, he highlighted that the Chilean scheme distributes a total amount among participants and prevents remuneration from disappearing entirely. Furthermore, he noted that in Chile, “BESS with a duration of 5h or higher saw their initial recognition reach 100% during a transitional period of 10 years.”

Regarding the contribution of batteries to the Mexican power system, Gareiss maintained that these assets “have high potential to provide firm capacity.” He explained that the Mexican government requires a minimum duration of three hours to recognize them as firm capacity, and he stressed that construction times are considerably shorter compared to thermal power plants. “The potential for batteries to bring firm capacity to the system in the short term is higher than with gas plants,” he pointed out.

He also highlighted that the recent renewable capacity tenders launched by the government include co-location requirements between renewable generation and storage “of close to 30%.” In his view, these provisions aim to reduce the intermittency of solar and wind generation and provide firmness to the electricity system.

As for storage business models, Gareiss indicated that the market is still awaiting regulatory definitions. “The low variability of intraday prices in the Mexican electricity system makes it unviable for batteries to be economically profitable if their activity is limited strictly to the wholesale market,” he stated. He added that batteries will be able to participate in arbitrage, the power balancing market, and ancillary services, although specifics on the concrete remuneration conditions are still lacking.

Regarding the barriers to the massive deployment of storage, he maintained that the main problem continues to be “the uncertainty around the business model.” As he detailed, there is still no clarity on how batteries will be recognized in the power balancing market, nor on what ancillary services they will be able to provide and under what payment scheme.

Finally, Gareiss considered that Mexico will maintain a firm capacity shortage scenario for several years. “Aurora projects that the state of shortage, and likewise elevated capacity prices, will last until the early 2030s,” he stated. The analyst linked this projection to the recent official tenders to incorporate 12 GW of renewables with batteries and another 3.8 GW of gas plants by 2030.