Mexico’s Capacity Market settlement 2022: A fragile equilibrium

Mexico’s generation matrix continues to grow its reliance on gas-based generation. Throughout 2022, 65% of the energy generation matrix used natural gas. However, the added capacity from firm plants has stagnated since June 2022. At the same time, energy loads increased by 3.6% on average in the SIN, and the requirements for capacity increased by 10%. Higher demand and the stillness of installed capacity led the market to overcome the oversupply situation in 2020-2021. As a result, 2022 closed at 1.0036x (clearing price expressed as a multiplier of the levelized cost for the reference technology, a gas CT) – a sharp increase from 0.0257x in 2021 and 0.32x in 2020, and the closest at equilibrium that has ever been. Despite solar decreasing its share in the generation mix in 2022 to 4.9% from 5.3% in 2021, solar penetration continues to shape market dynamics, shifting lower operating reserve hours to after-sunset hours and further decreasing the benefits it captures from this market.