Market-value of Renewables in the Young Mexican Power Market

Abstract

This research aims to find the effect that renewables have to reduce the electricity price (the merit-order effect, “MOE”) in the Mexican electricity market. Using data from January 1st of 2017 to December 31st of 2019, a linear regression model was used to test for empirical evidence of the “MOE”. Results show a “MOE” of MXN$0.10/MWh per MWh of renewable generation. Scaling to the average renewable generation, the average “MOE” is 13.5% of the average electricity price. There’s evidence that the “MOE” is non-linear and that is different across wind and solar energy. The market value of renewables was only 93% of the market value of the system. Stakeholders should differentiate the average electricity price from the price received by each power plant. As the “MOE” becomes an integral part of investment assessments, investment behaviour will change, impacting the future of the energy mix. To my knowledge, this is the first “MOE” research regarding a young and growing power market with warm weather (fundamental differences from previous research).