A program implemented by the public sector arm of the Inter-American Development Bank (IDB) to increase financing for renewable energy private development is supporting at least seven wind, photovoltaic, and mini-hydro plant projects, paving the way for mobilizing more than US$1.8 billion in investments for the sector.
The program comes with a comprehensive technical cooperation package support, including the development of a knowledge management program for renewable energy projects and a study on public policies to maximize local benefits of wind projects.
Such an intervention is expected to help diversify the country’s energy matrix and bring about large-scale reductions of greenhouse gas (GHG) emissions.
The program. The public sector led Mexico Renewable Energy Program (approved in November 2011) , channels CTF resources in an amount of US$70 million, together with IDB’s own resources (over US$100 million from the IDB’s ordinary capital) and some US$160 million from the Mexican Development Bank Nacional Financiera (NAFIN), the executing agency of the Program, providing at least US$330 million of combined financing to private sector projects. The total value of investments in these projects is roughly US$1.8 billion. The CTF is also financing US$580,000 in technical cooperation for the project.
The program’s principal aim is to support the country’s Renewable Energy Financing Facility (REFF), which is providing project developers with competitive loans and contingency credit lines to cover cash flow deficits during the life of their renewable energy projects, including wind, photovoltaic, and small-scale hydro. By the end of 2014, the facility is expected to have financed 10 renewable energy power plants for a total installed capacity of over 1 GW. Financing for these projects is expected to mobilize additional resources in excess of US$1,500 million from other financial institutions in addition to NAFIN, which combined with investor capital will result in total investments of more than US$2.8 billion.
The program’s technical cooperation is aimed at designingpublic policies at all levels to maximize the positive impacts of wind projects in the socially inclusive development of the region, to minimize possible negative impacts, and to improve the distribution of benefits among different communities, within communities, and between men and women. Its specific objectives are the following:
- Evaluate the flow of resources, social issues, and existing mechanisms in the region of the Isthmus of Tehuantepec in connection with the preparation and operation of wind projects.
- Propose policies at the level of the communal land ownership schemes (ejidos and comunidades), as well as at the local, state, and federal levels.
- Propose a process for the implementation of such policies, including communication activities, training, and participatory planning.
- Contribute to the implementation of the proposed policies.
Technical cooperation for knowledge management willcontribute to capture and disseminate knowledge generated in Mexico on renewable energy projects. In particular, this will involve regulatory knowledge, financial literacy, and environmental knowledge.
Climate change impacts. The REFF is conservatively expected to finance a total of 1GW in renewable energy projects. The operation of these projects would lead to a reduction in emissions of 2.0 million tons of CO2 per year, or 40.0 million tons over the course of 20 years. This mitigation potential is equal to approximately 0.3 percent of Mexico’s current total annual GHG emissions.
Update on results. The full amount of CTF approved funds has been disbursed and will be allocated to seven renewable energy projects: 57 percent wind, 29 percent photovoltaic (PV) and 14 percent mini-hydro. Given the long-term nature of these types of investments, the implementation of some of these projects is still underway and more detailed data on their actual impacts will be available once they have begun operating. All technical cooperation activities described above are currently under execution.
High-priority on alternative energy. Mexico’s emissions of 715.3 million metric tons of carbon dioxide equivalent in 2006 make the country the 13th largest GHG emitter in the world and the second in Latin America, excluding land use changes such as deforestation. The country accounts for 1.6 percent of global CO2 emissions from fossil fuels.
Mexico places a high priority on climate change mitigation and adaptation. The government’s National Climate Change Strategy (ENACC) places climate change at the heart of the country’s national development policy. Its special Climate Change Program (PECC), which was part of the 2007-2012 National Development Plan, identifies priorities and financing sources. Nevertheless, Mexico’s renewable energy sector remains far from the point where individual private sector projects have access to commercial financing without the assistance of some type of concessionality.
The IDB Country Strategy with Mexico 2010-2012 and 2013-2015 specifically consider support for climate change adaptation and mitigation at the federal and sub-national level. This program is also consistent with the climate change initiatives set forth in the IDB’s Ninth General Capital Increase.
Lessons learned. CTF financing has been crucial to the implementation of the REFF and has effectively leveraged funding from both the Mexican public sector (through NAFIN) and the private sector itself. A clear scope for the appropriate use of these funds has permitted the program to run effectively in terms of targeting investors and assessing the intended impact. The scheme seems applicable not only elsewhere in the region where there is potential for energy development from renewable sources, but also to other initiatives similarly related to clean technologies, such as energy efficiency programs.