Auctions for Renewable Electricity Latin America Carbon Forum Mexico City, October 20th, 2017 Veronica Irastorza Associate Director

Globally, renewable auctions have pushed down prices Prices have been falling Brazil (2009-) Onshore wind, solar PV India (2010-) Solar South Africa (2011-) Solar, Onshore Middle East (2011-) Solar UK (2015-) multi-technology Germany (2015-) Solar (2016/17-) Wind Chile Mexico (2016-) Argentina (2016-) Source: IRENA, 2017 Countries with RES auctions Source: IRENA, 2014 Source: IRENA, 2017

Key design choices – Renewable Energy Auctions Only price or multi-criteria Format – e.g. sealed bid or descending clock Verification Bid bonds Non-delivery penalties To avoid bed-blocking/ speculative bidding Pre-qualification? Planning permissions, grid connections Supply chain plans/ requirements Long term contract at guaranteed price $/MWh Single technology/Multiple technologies Budget? Multi-year? location? 1.Product 2.Qualification 3.Competition 4.Delivery Tensions – e.g. maximise competition to reduce costs vs. maximise delivery of environmental targets

Lessons learned 1. Define the “product” carefully Long term contracts with guaranteed prices can help enable investments and finance, but transfer risks to Govt/consumers MWh renewable electricity at lowest price? Mature vs less mature technologies? Reliable electricity? Chile (baseload, peak and non-peak) Verification and incentives are crucial 3. Delivery is not guaranteed Winner’s curse – esp. in pay as bid and one-off auctions If cost of non-delivery is low (e.g. UK NFFO 1990s auctions – last round 15% delivered) Planning or grid connections may not materialize (if not required for pre-qualification) 2. Access to finance and maturity In Latin America, access to finance and the maturity of the market are key considerations for auction design, including contracts in USD: Mexico wanted to ensure investments. Argentina has had limited access to finance. Chile is a mature market with good access to finance. 4. Competition is paramount Denmark offshore wind 2010 Anholt – one bidder, one winner. Move to technology neutral auctions to maximise competition. Mexico was highly competitive High cost of entry may reduce competition Be clear about forward schedule of auctions pay as bid (Mexico, Argentina) S Africa – auction 1 (2011) bids were close to the published max prices

Contact Us Veronica Irastorza Associate Director NERA Mexico Veronica.irastorza@nera.com © Copyright 2017 NERA US Limited All rights reserved.

Summary results Mexico SLP Auction 1 Offers submitted 226 Winning bids 18 Energy awarded Volume: 5.4 million MWh Avg. price: 31.2 USD/MWh CELs awarded 5.4 million CELs 16.5 USD/CEL Auction 2 Offers submitted 321 Winning bids 56 Energy awarded Volume: 8.9 million MWh Avg. price: 19.23 USD/MWh CELs awarded 9.3 million CELs 14.24 USD/CEL Capacity awarded 1,184 MW 32,285 USD/MW Energy + CELs Avg. Price: Auction 1: 47.7 USD/MWh Auction 2: 33.47 USD/MWh